Flotek Responds -- Rigzone -- December 28, 2016

This is a hard story to follow -- at least I had difficulty following it -- due to all the players involved, the acronyms, abbreviations, and concepts. But it appears to be a fairly important story with a number of interesting data points. For my use only; don't quote me on this. I'm sure I've made many mistakes interpreting this article. If this is important to you, go to the source. I "write" this out to make sure I actually stay focused on the article, which seemed complicated but then made more sense as I kept slogging through.

From Rigzone yesterday: Flotek refutes study finding; Flotek says the oilfield is its biggest lab. Data points:

Background:

• Flotek apparently recently released a new study, testing its Complex nanofield Technology (CnF)
• FourWorld Capital Management LLC apparently questioned some of the results of that study, suggesting that Flotek conducts its testing in the lab and not in the field
• Flotek responded: it takes "learnings" from the lab and applies them to real-world situations around the world, from West Texas to Alberta to the Middle East
• MHA Petroleum Consultants' conducted the study in question on behalf of Flotek

Players:

• So, when reading this, MHA = the study; commissioned by Flotek
• FWC is shorthand for FourWorld Capital Management which questioned the MHA study

The MHA/Flotek study:

• CnF's effectiveness in DJ Basin wells was surveyed
• FWC says the study was flawed; FWC says two products containing CnF were omitted in the study
• OilPerm FMM-1 and FDP-S1007-11 contain CnF; omitted from the study according to FWC
• FWC says their own study included well-known factors that MHA/Flotek failed to consider: well length, operator, and location
• OilPerm FMM-1 and FDP-S1007-11 are both Halliburton products
• FWC says these two Halliburton products account for 22% of the 604 wells in FWC's data set
• Flotek apparently provided this trade name (FDP-S1007-11) to MHA for the studies in Texas conducted six months later

"Conclusions":

• FWC: "when adjusted for operator, location, and well length, we conclude the estimated impact of CnF on production cannot be distinguished from zero relative to non-CnF wells"
• interesting study results presented
• FWC says CnF usage dropped from 61% in 2014 to 19 percent in 2016
• FWC used FracFocus water volume data to determine market penetration of CnF usage in 2016 compared to 2016
• FracFocus is linked at "Data Links" at the blog

That's the first page of the story; now the second page. Data points:

• a new player: Stephens Inc (StInc) is an independent financial services firm
• StInc notes that FWC has a short position in Flotek
• StInc suggests/says/alleges:
• FWC incorrectly considered FMM-1 and FMM-2 similar enough to be treated as the same for the study; StInc says that is not accurate
• StInc noted that one of the consulting firms used by FWC is of questionable repute
• StInc notes that a well-known consulting firm endorses CnF
• StInc suggests too many variables not considered by FWC led to faulty conclusions

Now it gets real interesting:

• origin of CnF technology comes from using d-limonene (d-limonene) -- a solvent extracted from oranges -- for cleaning oil off a concrete garage floor
• the inventors then incorporated the technology with other additives to create a nano-droplet that could work downhole
• Flotek acquired the patent in 2000
• Flotek says the product "is used everywhere almost without exception that you may have a hydraulic fracturing technology" (sic)
• near the end of the article, it sounds as if Flotek migrated to CnF for its efficacy as well as the opportunity that it could provide a way to differentiate itself from other downhole technologies

Bottom line:

• obviously this is about money, investments, etc
• that does not interest me at all; I have never invested in any of the companies mentioned in this story and have no plans to do so
• what interested me: CnF, FracFocus, completion techniques -- but nothing about investment strategies
• a similar story some years ago when I posted a note about SlickWater -- obscure at the time, and I had no idea why I posted it except I thought it might be of interest over time